Policy change helps Egypt’s gas sector

24 July 2015, News Wires – Egypt’s decision to heed the concern of foreign investors about poor terms associated with meagre returns on investment in the gas sector is paying off.

Dabaa nuclear facility, Egypt.

International oil companies are once again ploughing cash into gas exploration and production.

The renewed commitment to large projects follows moves by state-owned Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company to offer investors improved prices for gas they sell into the domestic market.

Leading operators such as UK supermajor BP and Italy’s Eni are among the main beneficiaries.

BP is developing the $12 billion West Nile Delta project after securing improved terms for the long-stalled offshore scheme earlier this year.

Eni recently reached a deal with the Egyptian government which agreed to demands by the Italian company for attractive gas prices in return for investing $2 billion in coming years. Encouraged by the positive attitude of the Egyptian authorities, operators are now fast-tracking delayed development projects while stepping up exploration.

Eni this week announced a significant onshore gas discovery in the Nile Delta, which is already being developed thanks to its close proximity to the Abu Madi gas processing facilities.

International oil companies had previously baulked at investing in new projects in Egypt because of low domestic gas prices in place for more than a decade. Another barrier to investment was mounting debts to international oil companies, but the Oil Ministry moved last year to tackle the delayed payments.

Egypt’s pragmatism stems from it paying to keep the trust of major players that have for decades been present in the country.

The 2011 revolution and the ensuing turmoil dented that relationship and some such as BG Group faced disappointment when the government diverted their gas exports to feed domestic demand.

More success such as this week’s Eni discovery will help to encourage Egypt that its policy changes have been worthwhile.